PERSONAL FINANCE CASE STUDIES



PERSONAL FINANCE CASE STUDY Name

PERSONAL FINANCE BASICS AND TIME VALUE OF MONEY – 10 points

Meet Martin and Luz Marcotte. Martin is a 38 year-old successful graphic designer and Luz is a 35 year-old counseling psychologist working at a state facility in Kansas. They have a seven year-old daughter Paloma, who is in the first grade, and a two year-old son Joel, who attends the nearby daycare center.

The Marcottes will be facing numerous challenges that will require them to practice sound financial decision making, and, in instances where there is a sufficient time horizon, some prudent financial planning. Luz is currently finishing her doctoral program in Psychology, while maintaining a part-time status at the Habilitation Center where she works. The Marcottes own a home, two cars, have approximately $10,000 saved up in various savings and investment accounts, and own some assets around the house. They are also invested in their 401ks that they maintain at their respective places of employment.

This couple is facing some financial issues that they have not yet addressed. Although they both have jobs where they make decent salaries, they have not really thought about their children’s educational needs. Inflation in the cost of college education is a reality for most parents, which has to be kept in mind when planning for the future. Moreover, Martin’s mother is in her late seventies, and has been facing declining health. She will not be able to live by herself for much longer. Luz, who originally hails from Peru, sends money to her family regularly, but her parents are aging and may need more financial assistance in the future.

Lastly, due to the Marcottes’s fairly hectic lifestyle, they have not given much thought to their own retirements, or the possibility of how they would handle a layoff from work.

QUESTIONS

1. What are the areas of financial concerns that the Marcottes are currently facing?

2. The Marcottes are making some financial decisions that will help them in the future. In your estimation, what are the sound decisions they’ve already made?

3. College education is increasing at a rate of 10% per year. If college cost is running at $22,000 a year today, what will the Marcottes need to have saved up for Paloma in 7 years and for Joel in fifteen years? You can assume that the Marcottes earn 6% on their investments. You can use the financial calculator at Practical Money Skills to find the answer. Look through the calculators to find the one that will provide you with the correct answers. Assume that the Marcottes can only save $100 a month towards each child’s educational funding.

4. What is the opportunity cost for the family while Luz is pursuing her Doctorate in Psychology?

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